E-commerce’s Effect on Real Estate Trends: Retail, Industrial, and Warehouse Solutions

E-commerce retailers like Amazon have changed the nature of American business. E-commerce is the process during which commercial transactions occur solely through online communications. American consumers can order a new refrigerator or a textbook from the comfort of their couch. The e-commerce boom has rapidly altered consumer behaviors. As a result, the retail, industrial, and warehouse real estate trends and markets have been changing drastically. Each industry faces its own setbacks or successes. Suggestions for adapting to each market’s needs are listed below.

E-commerce and Retail Real Estate Trends

Identifying Retails’ Modern Challenges

There are many misconceptions as to why traditional retail is struggling in America today. While e-commerce has altered consumer shopping habits, the e-commerce industry not solely responsible for the changing retail real estate trends. One common myth is that Americans prefer e-commerce to brick-and-mortar shopping simply because it is cheaper. However, the issue is not that Americans do not want to spend money. Since 2005, consumer spending in the restaurant industry has grown twice as quickly compared to all other retail spending.

Additionally, a 2016 Pew study found that 65% of Americans who shop online prefer buying products from a physical location. E-commerce may be convenient, but shoppers continue to desire a brick-and-mortar experience. The reason shoppers ultimately do not make a purchase at a retail store is because of online product reviews and the opinions of friends and family. While shopping in a retail store, almost 60% of consumers discuss a potential purchase via a phone call or text. Smartphones allow consumers to immediately compare prices and receive opinions on a purchase. E-commerce has not made Americans lazier; rather, it has afforded shoppers with more options.

Another challenge that retail faces is the over-construction of malls in America. Between 1970 and 2015 , malls were so popular that the number of malls constructed in America grew more than twice as quickly as the entire population. The United Kingdom, comparatively, has five times less the amount of malls. Malls popularized a shopping destination experience, but with the advent of e-commerce, Americans have more options for retail shopping. So, while major retailers report that they are closing numerous store locations – for example, Macy’s and Sears each closed 15% of their stores in 2017 – these numbers are skewed due to the massive volume of existing retail space. Despite the e-commerce boom, and the uncertain future of American malls, brick-and-mortar stores do have options to stay competitive.

Offer Price Matching

It has been proven that consumers prefer an in-store shopping experience. In order to incentivize consumer foot traffic, enact a price match policy for your business. Price matching is a practice in which a retailer will honor a lower advertised price for a product if the consumer can present a reputable competitor’s price at the time of purchase. Price matching policies usually only allow consumers to present information from large, reputable e-commerce sites such as Amazon. This policy is particularly effective for a retailer that specializes in a single industry, such as athletic equipment or computer parts.

It is not enough to merely enact a price-match campaign, however. Customers must be able to understand the policy clearly before preparing for a purchase. If a customer is presented with a policy that is rife with addendums and asterisks, then they may view the policy as being too complicated to be worthwhile. If your business chooses to allow price-matching with Amazon, be sure to only price-match products sold and shipped by Amazon, since third-party sellers can be unverified and unreliable. While offering to lower prices may seem counterintuitive, there is proof that Americans want to shop in-store. Incentivize that desire by clearly advertising this kind of policy.

Provide Positive Customer Experiences Online

With the advent of Twitter, it has never been easier for consumers to publicly complain about an experience with a retail store or brand. In mere minutes, a company can be thrust into the spotlight. Rather than fear a consumer outcry, retail businesses should embrace customer complaints and encourage consumers to share their experiences. A 2017 Gallup poll examined what happened when businesses invested in providing a genuine and positive resolution to a publicized consumer complaint. 73% of consumers who had a positive resolution reported that they were very likely to purchase something from the brand in the future. Providing a positive resolution experience can be more effective than strong branding, according to Gallup. Businesses that invest in a good PR team can see a higher customer engagement overall. Ultimately, brick-and-mortar retailers will thrive if they engage with consumers directly and offer them incentives to visit their location.

E-commerce and Industrial Office Real Estate Trends

While brick-and-mortar retail spaces have, at times, struggled to reinvent themselves during the advent of e-commerce, industrial office real estate has boomed due to businesses like Amazon. Industrial office real estate is highly valued for the combined office and warehouse spaces that they offer. E-commerce requires larger storage than traditional retail, leading many organizations to need larger industrial offices: not only so that they can hold more inventory, but also so that they have more space for processing shipment and returns. The demand for industrial real estate has grown rapidly since the e-commerce boom. In 2016 , industrial real estate grew approximately 40% in the United States.

Major port cities and urban centers are seeing particularly competitive industrial real estate trends, due to the limited amount of space and large volume of trade that occurs in these high-transit areas. New Jersey industrial office real estate is performing particularly well. According to one 2017 analysis , new industrial real estate leases rose over 37% quarter over quarter. E-commerce is promoting growth and competition for industrial offices.

Location, Location, Location

The largest challenge facing new businesses looking for an industrial real estate space is the fierce competition. One option for addressing this is by carefully selecting your business location. New York City, and its surrounding metro area, has seen a large demand for industrial office spaces. Businesses looking for a space of their own should consider looking closer to central New Jersey. While a metro area location is desirable, vacancies are harder to come by in urban regions.

Industrial real estate rents have rose with the demand for space, so the closer a business gets to an urban center, the more expensive a space will be. By moving to a more comfortable location in New Jersey, a business can find a space that is affordable while still being within a metropolitan region. Looking in suburbs of urban centers will be easier than starting off with a search in Bergen County locations.

E-commerce and Warehouse Real Estate Trends

Warehouse real estate is also on the rise, due largely to the growth of e-commerce. The New York Times estimates that e-commerce warehousing requires far more space than brick-and-mortars: businesses like Amazon need over three times the amount of space compared to traditional retail warehouses. This is due to the fact that e-commerce businesses need more space to hold a wide variety of inventory. E-commerce also handles returns exclusively over the internet, so large inventories are a requirement for e-commerce businesses to succeed. Due to the growth of e-commerce, warehouse spaces have been growing rapidly. By the third quarter of 2017, New Jersey warehouse spaces built approximately 7.8 million square feet worth of additions onto existing real estate. This growth is due in part to consumer demand for more efficient deliveries and larger product inventories to choose from.

However, a major challenge that warehouses face is the increasing competition with Amazon. New Jersey’s metropolitan location makes it an attractive state for Amazon to expand to. Already, Amazon has many large fulfillment centers, including warehouses in Robbinsville, Cranbury, and Edison. E-commerce includes more than just Amazon, however. Blue Apron, a dinner recipe and ingredient delivery service, has opened some warehouses in New Jersey in order to meet growing demands. There has also been a rise in subscription box services: companies that sell bundled items to consumers once a month. These companies, such as Loot Crate and Birchbox, have seen tremendous growth over the past few years. New Jersey warehouse businesses are competing with a variety of e-commerce businesses. Small-and-mid-sized businesses have options to survive in this growing competitive real estate market, though.

Invest in Logistics

Consumers no longer use catalogues to order their desired products. Expectations for expedited shipping has drastically changed. In 2016, 89% of consumers believed that a fast shipment should take within two days of the order being placed. Only 10% of surveyed consumers believed five to seven days was a fast shipping period. Warehouses need to be highly organized in order to meet consumer expectations. In order to stay ahead of orders and deliveries, warehouse businesses should invest in either a dedicated logistics department, or they should work with a logistics company. Being able to track inventory in an efficient manner will set your warehouse apart. With more efficient operations comes better sales outcomes.  Mid-sized warehouses should invest in a strong logistics team so that they can focus on expanding their property.

Ultimately, while e-commerce has changed real estate trends, there is hope for all commercial real estate industries. So long as businesses invest in their customer experience and maintain efficient business practices, they will be able to thrive in a highly competitive state.

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